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Personal Finance > Bonds Junk bonds explained: 8 of 9

Corporations often need to raise money to expand, and issuing bonds is one way to do so. However, some companies are stronger that others, and are more likely to be able make the interest payments on the bond, and return the principle at maturity. Weaker companies, on the other hand, are at greater risk of defaulting on the agreement, and the higher risk carries with it a higher interest rate. These higher risk/higher reward issues are commonly called "junk bonds." Who decides which bonds are junk? Rating agencies like Moody's and Standard and Poors are two prominent examples. Agencies con...
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